Those who advocate for Obamacare’s Medicaid expansion by urging policymakers to use federal funds to subsidize private insurance coverage often portray this policy as a good deal that just makes sense for Utah taxpayers. After all, the argument goes, the federal government has promised to pay the entire bill for the first three years, so this form of Medicaid expansion won’t even cost Utah taxpayers a dime until year four.

Unfortunately, the real-world experience of states that are now using Medicaid expansion dollars to subsidize private insurance coverage is illustrating that this is likely to end up being the next broken promise of Obamacare.

Like Utah is now considering, in 2013 Arkansas agreed to expand its Medicaid program to subsidize private insurance coverage for the expansion population – mostly able-bodied, single adults without children. And though Arkansas was promised that the federal government would pay the full cost of covering the expansion population in the first three years, in just the second month of operation Arkansas’ private insurance Medicaid expansion plan began experiencing cost overruns that could require Arkansas taxpayers to pay tens of millions of dollars for the first three years of Medicaid expansion.

The reason state taxpayers may have to pay for the “free” years of Medicaid expansion is that Arkansas’ Medicaid expansion waiver includes a provision, in its special terms and conditions, meant to protect the federal government from unexpected Medicaid costs under a state-submitted waiver. More specifically, the waiver includes a monthly per-enrollee cap on federal spending of $478 for the first three years of the Arkansas Medicaid expansion. Such cost-protection provisions for the federal government are a common feature of Medicaid waivers, meaning Utah policymakers can similarly expect to see a federal cost protection provision in any “Healthy Utah Plan” waiver. At the end of the waiver period, Arkansas taxpayers must repay the federal government for any costs beyond $478 per enrollee per month.

These costs could be significant. Based on reporting from legislative auditors and the Arkansas Department of Human Services, the cost of Arkansas’ private insurance Medicaid expansion plan started out at $477 per enrollee in January 2014, but rose to $483 in February, exceeding the federal spending cap. Based on the factors driving the cost of the Arkansas Medicaid expansion plan – the cost of insurance premiums, which the state does not control, and the lack of sufficient incentives for enrollees to control their health care costs, which the federal government does not allow – there is little reason to expect the monthly per-enrollee cost to come back down. If the February level of cost overruns continue, the private insurance Medicaid expansion option could cost Arkansas taxpayers anywhere from $6.6 million (based on current program enrollment) and $16.6 million (based on expected program enrollment) in 2014 alone.

Arkansas’ projected cost overruns are relevant to Utah for two reasons. First, like Arkansas’ Medicaid expansion plan, the proposed Healthy Utah Plan is based on the idea of subsidizing private insurance coverage for the expansion population, meaning the costs of the Healthy Utah Plan will similarly be driven by insurance premium costs that are largely outside the state’s control. In fact, a recent survey of insurance brokers reported that “health insurance premiums are showing the sharpest increases perhaps ever,” with “some state (sic) show[ing] increases 10 to 50 times” normal. The reason cited for these dramatic increases in premiums is Obamacare’s insurance regulations, suggesting that further premium hikes are possible as the Obamacare insurance regulations continue to iron themselves out. In other words, if protecting Utah taxpayers is the priority, now may be one of the worst times to undertake Medicaid expansion under the Healthy Utah Plan, due to Obamacare-induced volatility in health insurance premiums.

Second, as with Arkansas’ Medicaid expansion plan, the cost-sharing provisions of the Healthy Utah Plan waiver are not likely to provide sufficient incentive for enrollees to control health care plan costs. The purpose of Medicaid is to keep health care costs low for enrollees so they can afford health coverage, and this is the perspective of CMS when considering Medicaid waivers. They have shown this very directly to Utah by rejecting past waivers that contained only modest increases in cost-sharing provisions. Unless and until there is actual, real-world evidence to show that the cost-sharing provisions approved by CMS for the Healthy Utah Plan will produce sufficient incentive for Medicaid expansion enrollees to control their health care costs, it would be imprudent to gamble Utah taxpayer dollars on an unproven Medicaid expansion plan, especially when conceptually similar plans in other states are beginning to reveal that they may be very costly for taxpayers in the real world.

For these reasons, the prudent policy for taxpayers regarding Medicaid expansion is to take a “wait and see” approach, while observing the outcomes of Medicaid expansion programs conceptually similar to the Healthy Utah Plan in other states. Utah should continue the prudence and level-headed deliberation that has made us one of the best-managed states in the nation, and oppose efforts to rush into Medicaid expansion too hastily.

Note: Much of the information cited in this message came from a recently published report from the Foundation for Government Accountability.